Canadian Player Question: What Happens If I Don’t Report My Gambling Winnings?
Canadian Player Question: What Happens If I Don’t Report My Gambling Winnings?
Why do people gamble? They do it for the thrill. They do it for the fun. They do it for the challenge and the experience. Above all though, they do it to win money! There are plenty of aspects of gambling that are great but nothing beats the rush of winning those chips or cold, hard cash.
There is very little downside usually to winning or earning money but sometimes, that money comes with a tax burden. If you live in Canada, paying taxes to the Canada Revenue Agency (CRA) is just a part of life. These taxes help pay for many of the social services that Canada offers its citizens.
In Canada, there is sales tax, goods, and services tax, and, of course, income tax. The question that gamblers have though is, are gambling winning taxed in Canada? And, what happens if I don’t report my gambling winnings? We will answer that question below as discuss other things you need to know about Canadian taxes and how they relate to gambling.
How do Canadian Income Tax Work?
Canada has a relatively simple income tax structure, especially when compared to income taxes to the south in the U.S. Canadian citizens can expect to pay between 15% and 33% or so in income tax depending on how much they make in a year. For 2021, the Canadian federal tax rates look like this:
- 15% on the first $49,020 of taxable income, plus
- 20.5% on the next $49,020 of taxable income (on the portion of taxable income over 49,020 up to $98,040), plus
- 26% on the next $53,939 of taxable income (on the portion of taxable income over $98,040 up to $151,978), plus
- 29% on the next $64,533 of taxable income (on the portion of taxable income over 151,978 up to $216,511), plus
- 33% of taxable income over $216,511
There are province and territory income taxes in Canada as well. These range from 4% in Nunavut and 5.05% in Ontario at the low end to 15% in the Yukon and 21% in Nova Scotia. The province of Quebec has its own tax collecting body, Revenu Quebec, and the province’s income taxes range from 15% to 25.75%.
Canada has a reputation of taxing its residents more than the U.S. and other countries but the truth is, it is right around the world average. According to studies, the average taxes collected around the world are $12,911 USD and Canada is at $14,693 USD.
What Kinds of Gambling Does Canada Offer?
Many forms of gambling are legal throughout Canada. This includes casino gambling both in land-based and online casinos where you can play a variety of table games and slot games. You can also gamble in Canada through lotteries, horseracing, and sports betting.
The legal gambling age in Canada is determined by the individual provinces and territories and is either 18 or 19 depending on where you are and the type of gambling you want to do. In most places, the legal casino gambling age is 19 although it is 18 in Alberta, Manitoba, and Quebec. For lotteries, the legal age is generally 18 except for in British Columbia, New Brunswick, Nova Scotia, Newfoundland and Labrador, and Prince Edward Island where the age is 19.
With all these forms of gambling available in Canada and legal for anyone over the age of 18 or 19, the tax questions loom large. Are gambling winning taxed in Canada and what happens if I don’t report my gambling winnings?
Are Gambling Winnings Taxed in Canada?
The short answer for most gamblers in Canada is no, gambling winnings are not taxed in the country. Unlike in the U.S., where all gambling winnings are taxed, this is not the case in Canada. Anything you win while wagering in Canada will go right from the casino, lottery, or other organization right into your pockets. Even if you play online (for the most part) you won’t be taxed at any time, from when you receive your first deposit bonus to your big jackpot win.
Gambling winnings in Canada are considered to be windfalls, not income like in other places around the world. Because of designation, federal Canadian income tax rules are not applied to these winnings. While the vast majority of Canadian gamblers will never be taxed on their winning, there are a few scenarios where you might be.
When are Gambling Winnings Taxed in Canada?
While most gambling winnings in Canada are never taxed, there are certain exceptions to this rule. Here is a list of these exceptions that may cause you to have to ask, what happens if I don’t report my gambling winnings?
The one group that has to pay taxes on their gambling winnings in Canada is professional gamblers. These are gamblers who gamble as a commercial enterprise and make their primary income from gambling. Sometimes called “sharps” or “advantage players”, these gamblers are able to support themselves by playing casino games or betting on sports. Their winnings aren’t considered windfalls like recreational gamblers, it is straight income.
This income is taxed like any other income in Canada. The CRA will take between 15% and 33% depending on the value of the winnings and the local province or territory government or Revenu Quebec will take its share as well. The benefit of paying taxes on winnings for professional gamblers is that they can write off legitimate business expenses related to gambling.
These professional gambler income taxes apply to a wide range of gambling activates. Gamblers may be professionals in casino gambling, sports betting, horse racing, poker, fantasy sports, or eSports. However, even professional gamblers do not have to pay taxes on winnings that come from 100% games of chance. This means things like the lottery, scratch-cards, and raffles. These games are tax-free for all Canadians.
Another way that you might end up paying taxes on your gambling winnings is if you take those winnings and invest them in a way that earns interest. This could be some type of bank account that earns interest or something like stocks or mutual funds where dividends earned may be subject to taxes.
This is a roundabout way to have your winnings taxed but for the most bang for your buck, you want to either spend it or put it in a tax-free investment vehicle. In Canada, one of the best ways to do this is to put it in a Tax-Free Savings Accounts (TFSA). In 2021, the limit that a Canadian citizen can contribute to their TSFA in a year is $6,000.
Winnings from work
If there is some type of gambling-related contest at your place of employment that you win, you may have to pay taxes on those winnings. If the gambling contest at work results in a cash prize of a prize that has direct cash value, like a gift card, then it is considered an employment benefit. These employment benefits are considered income by the Canadian government and will be taxed as such. Your employer may also deduct things like Canada Pension Plan (CCP) and/or Employment Insurance (EI) premiums in some cases.
Winnings in the U.S.
In Canada, what happens if I don’t report my gambling winnings? Probably nothing. But if the winnings occur in our neighbor to the south, that is a different story. U.S. gambling winnings are taxable as income. Canadian citizens who are not legal U.S. residents and who win more than $1,200 USD in America are subject to a 30% tax from the United States’ Internal Revenue Service (IRS).
In this case, you will need to file a U.S. tax return by filling out a 1040NR form which is a U.S. nonresident alien income tax return. When you do this, you can qualify for a refund of these taxes if you either have gambling losses in the U.S. that offset some or all your gambling winnings, or the winnings come from a specific set of games. These games include blackjack, baccarat, craps, roulette, or big-6 wheel.
These U.S. taxes will apply if you are visiting the country and win money in any land-based casino in the country. Also, if you win online while in the States, this can apply as well. Even if you are in Canada but are playing in an online U.S.-based poker site, these income taxes may apply to you as well.
Are Gambling Losses Tax Deductible in Canada?
Many people will ask the “glass half full” question, what happens if I don’t report my gambling winnings? Others though may ask the more pessimistic (or possibly realistic question), what can I do about my gambling losses? The answer for most gamblers is again, nothing. For recreational gamblers, losses are not tax-deductible because winnings aren’t taxed. Professional gamblers may be able to deduct losses in some cases but you should consult a professional tax accountant before you do this.
If you are a recreational gambler, DO NOT try to deduct gambling losses. A Toronto man tried this in the early 2000s and his case went all the way to Canada's Federal Court of Appeal. He claimed that although he had a full-time job, he was also a professional gambler who paid income tax on his winnings in previous tax return filings.
According to reports at the time, “He claimed that his degree in mathematics — coupled with his experience in probability theory — gave him the expertise to register his gambling as a business.” Unfortunately, he also told the court he gambled mostly for the thrill of it and was deemed the loser of the case and made to pay $1,000 in court costs.
What Happens If I Don’t Report My Gambling Winnings?
What happens if I don’t report my gambling winnings? In Canada, for most people, the answer is nothing. If you are a recreational gambler, you are in the clear for paying Canadian taxes on your gambling winnings. You can’t deduct your losses like in other places but that can be a small price to pay for being able to keep your gambling windfalls.
Just remember, if you are a professional gambler that makes your living from gambling, these rules are different. You will have to pay taxes and you still cannot write-off your winnings. That said, you can claim legitimate business expenses which can help offset some of these losses.
So, as a professional gambler what happens if I don’t report my gambling winnings? The answer here is the same answer that would be given to any Canadian who didn’t report income. The penalty for this is a $100 fine or 50% of the underreported amount, whichever is greater. Repeated offenses in Canada can result in a 10% federal penalty and a 10% provincial or territory penalty.
Gambling in Canada is great for so many reasons but one of the biggest reasons is that Canadian players don’t have to pay income tax on their gambling winnings. These winnings are tax-free in most cases because of the Canadian tax system and how it views winnings versus income.
While this is true for most gamblers and not reporting winnings will not result in any problems at all, it is not true for everyone. Professional gamblers, gamblers who are investors, gamblers who win from their place of work, and gamblers who win money in America all may be subject to some kind of taxes on their winnings. For professional gamblers who gamble as a commercial enterprise, not reporting winnings can lead to penalties and fines.
Recreational gamblers in Canada, which covers the majority of gamblers, do not have to pay taxes on their winnings in 2021. Tax law and tax codes are changing all the time though so it is always advisable to consult a professional Canadian tax accountant about which rules apply to you before filing your yearly return. By doing this, you will be able to fully cover yourself by getting the best advice from someone who really knows the lay of the land when it comes to Canadian tax law.
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